If we see a continued recovery in US housing, we’ll start to see a US construction-led recovery. Once that comes through, we’ll see employment recovery and that should drive a consumption-led recovery. This could very quickly see a positive spiral happening.

Europe is a little bit more challenged. The European financial crisis is still with us. It’s going to be a two to three year workout. Growth rates in Europe will be much slower over this period. But I think markets are in the process of discounting that.

Emerging markets are an extremely good long-term place for investors to target. They have a long way to grow. We will go through cycles of being worried about inflation, short-term slowdowns. But you are going to see China, India, Brazil and Africa deliver consistent economic growth of between 4% to 7% which will power GDP growth for the world over a period of time. I think that’s where the investment opportunities will lie, whether they are companies domiciled in those emerging markets which you want to play, or companies in developed markets, which sell to those emerging markets.

Why invest in global equities now?
I think the consumption recovery in emerging markets, the growth of the middle class in those markets, is something that will propel certain sectors and companies. For example, people there will increase their spending on personal items on personal care, on healthcare as their per capita income goes up.

We try to think of themes which would stay with us irrespective of the macroeconomic environment. So if you look at a theme like Smartphone penetration, that’s a theme that we can play across the globe by either investing in the phone manufacturers, the manufacturers of equipment who power the broadband networks, the telephone or the cell phone providers.

When I look at companies from a global perspective I try and think about where they’re actually selling.  What are the key drivers of their growth?  BHP Billiton is stock listed in developed markets.  It’s listed in Australia.  But its growth triangles are all in emerging markets.  From my perspective it’s an emerging market stock.  Infosys on the other hand is listed in India, but it sells all its goods and services to US and to Europe.  From my perspective, that’s a developed market stock.

My portfolio is only 15% weighted towards emerging markets, but over time as we see more national champions coming out of emerging markets and we see more Samsung-like companies coming out of Korea or Hyundai and Kia, I’d expect that weighting to go up to closer to 30% over the next five years.

What are the risks for global equities?
The main issue I see is high energy prices and high oil prices. They could very quickly stamp out the economic recovery that we’re seeing, as energy could be a huge tax on the consumer and on the world. 

I also think the European economic crisis has not yet been fully sorted and we could very quickly see things change for the worse. The issues with Greece, with Portugal, with Spain have not yet been fully sorted. It will take some time to be sorted. That’s a risk to globalisation.

Longer-term, what you’re seeing is a lot of money printing by central banks. This could lead to huge fiscal deficits, huge sovereign debts on an overall basis.  At some point in time you need to find the money to pay for all this sovereign debt and all the money printing that central banks are doing. That could be tremendously inflationary for the global economy and that’s a risk that investors need to keep in mind, because ultimately when you have inflation it is always the savers who end up paying for it. 

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